Healthcare, the second-largest sector weight in the S&P 500, was the best-performing sector in the U.S. last year. The Health Care Select Sector SPDR ETF (NYSEArca: XLV), the largest healthcare ETF by assets, gained 6.30% last year and some analysts believe more upside is in store for the healthcare sector in 2019.
XLV allocates about two-thirds of its combined weight to pharmaceuticals and biotechnology stocks. There are other catalysts to consider, including that the U.S. economy is moving into the late-cycle phase, overall growth may slow and signs of an economic slowdown could pop up. Consequently, investors may also turn to defensive sectors that are less economically sensitive, such as health care.
“The health-care ETF bounced off support at around $80 earlier in December, but did not break below its February and April lows. It is still in a correction down about 11 percent from its 52-week high,” reports CNBC.
Areas Of Strength
Over the past 10 years, XLV is one of the best non-leveraged ETFs to own in January, generating positive returns in the first month of the year in eight of those 10 years. Additionally, medical device and technology stocks often start off well in January.
Industry observers argue that medical technology companies can tap into increased healthcare spending among emerging economies while the U.S. market has matured and could experience slower growth. Looking ahead, in the years through 2024, spending growth is projected to average 5.8% and peak at 6.3% in 2020.
If investors favor defensive sectors in 2019, healthcare and the related ETFs are poised to benefit.